Hg Transition Capital: Using Structure to Create Opportunity

Large private equity investors are getting more creative in order to improve investment opportunities and outcomes. One way they are doing this is by introducing investment structures and strategies that provide CEOs with more optionality than traditional minority and majority equity sales. These differing approaches in structure often sit alongside more traditional pools of capital and allow investors to more flexibly respond to investment opportunities depending on shareholder preferences.  An example of a firm successfully employing this strategy is Hg.

Hg was formed in December 2000 after its partners spun the firm out of its parent company Mercury Asset Management, which was owned by Merrill Lynch at the time. Based in the UK, Hg has grown to be one of the largest private equity investors in Europe with over £9bn in assets under management and 140 investment professionals across offices in London and Munich. Hg is currently making investments out of its flagship middle market buyout, small-cap buyout, and newly formed Transition Capital funds. The firm is primarily focused on technology and services investments across Europe, however recent investments have also included cross-border opportunities in the United States.

Hg Transition Capital was formed in early 2018 as a supplement to Hg’s existing control buyout strategies. “Transition Capital is another strategy which enables Hg to identify opportunities with the appropriate business model to generate strong, risk‑adjusted returns. The nature of Transition Capital’s focus means we are able to maintain the clarity of our usual investment strategy, while broadening our opportunity set of potential investments and adding to the scale and reach of our network within European technology,” said Peter Miholich, Director, Hg.

For companies that are not yet at the size and scale necessary for Hg’s flagship buyout strategy or who may be looking for partial liquidity, Transition Capital provides Hg another avenue to support leading software businesses. “As well as offering privately-owned businesses an attractive alternative to a minority equity sale, through structured equity, Transition Capital gives entrepreneurs access to the support of Hg and its network, whilst retaining voting control of their business,” expanded Peter Miholich.

In early September, Hg Transition Capital announced a structured minority investment in BrightPay, a Dublin-based provider of payroll, HR, and accounting software products. BrightyPay’s software solution is used by over 120,000 employers in the UK and Ireland and is well positioned to capitalize on impending 2019 changes to the Irish payroll system.

The BrightPay deal was Hg’s first investment from its Transition Capital fund. Going forward, Hg plans to continue to focus on businesses with similar characteristics to BrightPay, as well as companies that share the characteristics of existing portfolio companies in Hg’s buyout fund. Peter Miholich added, “We expect to invest in businesses that have exactly the same defensive growth characteristics, with the same business models and operating in the same sectors and clusters as our other Funds, since this is where our existing origination efforts are focused and where our expertise lies.”

Further detail on Hg and BrightPay can be found on their respective websites (https://hgcapital.com/) and (https://www.brightpay.co.uk/).

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